Exercise 5-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO4]

[The following information applies to the questions displayed below.]

Data for Herron Corporation are shown below:

	Per Unit			Percent of Sales
Selling price	$	60		100%
Variable expenses		42		70%
Contribution margin	$	18		30%

Fixed expenses are $75,800 per month and the company is selling 4,100 units per month.

Exercise 5-5 Part 1

Required:
1a.	The marketing manager believes that an $8,700 increase in the monthly advertising budget would increase monthly sales by $16,000. Calculate the increase or decrease in net operating income. (Input the amount as a positive value. Omit the "$" sign in your response.)

Net operating income

(Click to select)decreasesincreases by

$

1b.

Should the advertising budget be increased ?

	No
	Yes